Socar Seeks $3 Billion to Finance Oil Refinery in Western Turkey

State Oil Co. of Azerbaijan, the energy company known as Socar, is seeking $3 billion to help finance a planned refinery in western Turkey as it expands output of naphtha for chemicals production in the country.

UniCredit SpA (UCG) (UCG) will arrange a loan with Turkish and international lenders, Kenan Yavuz, chief executive officer of Socar’s local unit, said after signing a construction contract for the $5 billion plant, to be built on the Aegean coast.

Naphtha from the proposed Star Refinery will be used to make petrochemicals at Socar’s Turkish Petkim Petrokimya Holding (PETKM) division. The Azeri oil producer and processor is among energy companies to increase spending in Turkey as a burgeoning economy boosts demand for fuel and chemicals. Its investment in the site near Izmir may help the country cut petroleum-product imports.

Talks on the loan are in the “final stages,” Yavuz said today at a news conference. “We are contributing $1.8 billion from our equity into the project as the sponsors.”

The refinery, Turkey’s fifth, will process 10 million metric tons of crude a year, producing 1.3 million tons of naphtha as well as diesel and jet fuel, Yavuz said. Petkim will take 2 million tons of fuel a year from the plant, to be built by Tecnicas Reunidas SA (TRE), Itochu Corp. (8001), Saipem SpA (SPM) and GS Engineering & Construction Corp (006360).

Rating Increase

Turkey’s economy is forecast by the government to expand 5 percent this year. Moody’s Investors Service this month raised the country’s long-term foreign-currency rating to Baa3, the lowest investment grade, citing improvements in key economic indicators and prudent management of public finances.

“An upgrade of Turkey’s credit rating will help lower financing costs,” Yavuz said. Export-import credit agencies in Spain, South Korea, Japan and Italy will also contribute to the funding package, he said.

The plant will be built next to an 11 million-ton-a-year refinery operated by Tupras Turkiye Petrol Rafinerileri AS (TUPRS). Today’s contract amounts to $3.46 billion and the total bill will be as much as $5 billion when financial costs are included, according to Yavuz.

The refinery may help Turkey narrow its current account deficit, the world’s third-largest in 2012, by about $2.5 billion a year, according to Yavuz, who said construction will take less than five years.

Socar has an 81.5 percent stake in the project, while Turkish energy group Turcas Petrol AS (TRCAS)holds the rest. A power plant and port are planned at the same site, bringing total investments to $17 billion by 2018.

As well as naphtha, the refinery will produce 4.9 million tons of diesel a year and 1.63 million tons of jet fuel, Yavuz said. It will also make liquefied petroleum gas and petro-coke.

To contact the reporter on this story: Ercan Ersoy in Istanbul at eersoy@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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